With the implementation of this decision, all government investment i.e. from GIDC in projects being undertaken by ISGSL would be routed through GHPL whereas SSGCL and SNGPL would transfer their shares in ISGSL to GHPL at face value, the sources added. The Economic Co-ordination Committee (ECC) in its meeting held on June 26, 1995 directed formation of a company with participation of Sui Southern Gas Company Limited (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) for the import of natural gas from Iran.
As a consequence, the Inter State Gas Systems (Private) Limited, (ISGS) was established in 1996 as a private limited company with equity participation of 51:49 of SSGC and SNGPL respectively.
A six years services agreement was signed among ISGS, SSGC and SNGPL on June 30, 2005 started from July 1, 2003 and till June 30, 2009. All the permitted expenditure incurred by ISGS on establishment activities of gas import infrastructure projects up to the stage of capitalisation were to be reimbursed by SSGC and SNGPL on actual basis at the ratio of 51:49 respectively. This expenditure was included by SSGC and SNGPL as operating costs in their revenue expenditure and passed on to gas consumers as part of the consumer tariff, which was approved by Oil & Gas Regulatory Authority (OGRA).
However, in its determination of May 20, 2008, the OGRA disallowed the inclusion of ISGS operating expenditure for FY 2008-09, in the Estimated Revenue Requirement (ERR) of SSGC and SNGPL for want of policy guidelines under section 21 read with section 2(xxvi) of the OGRA Ordinance, 2002.
The ECC in its meeting held on September 10, 2008 considered the summary submitted by Ministry of Petroleum & Natural Resources (MP&NR) and issued policy guidelines to OGRA on funding arrangement of ISGS .These policy guidelines stated the following: "The revenue expenditure of ISGS would continue to be included in the operating costs of SSGC and SNGPL at the ratio of 51:49, respectively to be recovered from gas consumers in the form of consumer gas tariff."
The Steering Committee/Sub-Committee of the ECC in its meeting held on December 31, 2010 directed ISGS to award the E&PM consultancy contract for IP project to ILF-NESPAK JV after the refusal of SSGC/SNGPL to undertake the same and Government Holding (Private) Limited (GHPL) was tasked to fund the immediate capital expenditure requirement of ISGS which included financing of the E&PM consultancy contract only.
The shareholding pattern of ISGS changed in order to reflect capital injection by GHPL to fund the E&PM consultancy cost only. Subsequently, MP&NR on August 20, 2011 issued fresh guidelines for reimbursement of revenue expenditure incurred by ISGS after changes in ISGS capital structure. These guidelines reiterated the following: "The earlier policy guidelines issued by ECC on the revenue expenditure of ISGS are explicit on the sharing ratio of 51:49 for the reimbursement of the expenditure by SSGC and SNGPL, without referring to the share holding pattern."
It was further directed by MP&NR that the existing arrangement of reimbursement of revenue expenditure under the ECC guidelines will not be effected due to induction of GHPL which is in any case project specific. The Service Agreement expired on June 30, 2009 but SSGC & SNGPL have continued funding ISGS''s revenue expenditure and were allowed by OGRA, based on the policy guidelines issued by ECC and reiterated by MP&NR.
The OGRA in its determination of ERR of Sui Companies for FY 2016-17 on October 6, 2016, pended the claim with respect to reimbursement of ISGS''s revenue expenditure and further disallowed ISGS revenue expenditure in the final revenue requirement of Sui companies for 2015-2016 referring to the change in shareholding pattern of ISGS due to equity injection by GHPL for the IP/GNGP project consultancy costs. The OGRA has directed that ISGS''s revenue expenditure should be borne in the ratio of its shareholding by GHPL (99.57%), SNGPL (0.21%) and SSGCL (0.22%).
The sources said the ISGS is currently undertaking mega gas infrastructure projects as required by prime minister and Ministry of Petroleum and Natural Resources. The ISGS, since incorporation, has had no independent source of income and therefore has been totally dependent on Sui companies for its revenue expenditure and GHPL for capital expenditure (consultancy services and related establishment cost of IP/GNGP project).
Under the current procedure, the Sui companies are allowed under the rules to treat these revenue expenses of ISGSL as pass-through cost recoverable from end consumers. In case this revenue expenditure is to be absorbed in the ratio of shareholding, this revenue expenditure will be absorbed as a cost by GHPL itself (a 100% owned company of the government).
After explaining the entire background, the Petroleum Ministry has submitted the following proposals to the ECC for consideration: (i) GHPL be tasked to fund all project activities of ISGSL as a 100% subsidiary company, therefore, all government investments (e.g. from GIDC) in projects being undertaken by ISGSL shall be routed to GHPL; (ii) SSGCL and SNGPL shall transfer their shares in ISGSL to GHPL at face value ; (iii) and GHPL being the parent company will give a three years term loan to ISGSL to fund all its expenditure on all government mandated projects being undertaken by ISGSL. This loan and related interest will be repayable after three years through a single bullet repayment on the terms separately agreed between GHPL and ISGSL through a loan agreement.